The Best Credit Card Consolidation Options

Credit cards can be easy to get and convenient to use. What’s more, many card issuers incentivize cardholders to keep using them to rack up rewards points. However, this ease of acquisition and incentives to use has American households often falling back on credit in the aftermath of a financial emergency — then having to deal with the debt for months or years to come.

Consolidating credit card debt can make it easier, faster, and less costly to pay off credit card debts by essentially reorganizing them. There are a few different ways to undertake this strategy. Here are three of the best options for the credit card consolidation process.

Credit Cards

1. Get a Debt Consolidation Loan

Borrowers struggling with credit card debt but who still have a strong credit rating may benefit from using a personal loan to wipe out other outstanding debts. This is an appealing option for those with good credit scores because it may be possible to qualify for a low-interest loan that will replace high-interest credit card accounts.

According to data from Investopedia, the median interest rate across hundreds of the leading credit cards exceeds 19%. Consolidation loan interest rates range from about 6% to 36%, with NerdWallet estimating those with excellent credit will encounter approximate APR rates just under 14%.

If you find yourself in a situation similar to the one outlined above, opting for the loan may ultimately reduce the amount you pay in interest and make it easier to stay organized because you’ll only have to make a single monthly payment. It’s also worth noting that this type of credit card consolidation affects borrowers’ credit scores positively if they consistently repay their loans over time.

2. Open a Balance Transfer Credit Card

Another option for borrowers weary of credit card interest is opening a balance transfer card. Balance transfers entail paying off one or more existing balances by using a special new card. This card will give you a low or 0% interest rate for a given promotional period during which you can focus on chipping away at the balance without worrying about growing interest.

Deciding whether a balance transfer makes sense starts with calculating the cost of your current interest versus the 2% to 5% fee you’d pay for the transfer. This is in addition to calculating how much you’d stand to save with interest paused.

Making the most of a balance transfer also depends on avoiding putting new purchases on the balance transfer card, as these are exempt from the special offer and will accrue full interest.

Credit Cards

3. Enter a Debt Management Plan

Under a debt management plan (DMP), you will use a credit counseling agency as the go-between when it comes to paying your creditors. That is, you will make a single monthly payment to a credit counseling agency, which will transfer those funds accordingly. These agencies have agreements with lenders to provide concessions such as reduced interest, or waived fees.

You can expect a DMP to take three to five years on average, during which you are responsible for making every monthly payment on time and in full. Falling behind on payments may cause lenders to revoke their concessions, defeating the purpose of program participation.

Each credit counseling agency also has its own fee structure and amounts, so be sure to understand the costs involved before signing up. It’s typical to owe a start-up fee and a monthly maintenance fee while participating in a DMP.

Many borrowers have used one or more of these credit card consolidation options to get the best for their debt.

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